Reference no: EM133961211

Question

JL.53 Bob's Bumpers has a repetitive manufacturing facility in Kentucky that makes automobile bumpers and other auto body parts. The facility operates 320 days per year and has annual demand of 74,000 bumpers. They can produce up to 375 bumpers each day. It costs $83 to set up the production line to produce bumpers. The cost of each bumper is $131 and annual holding costs are $20 per unit. Setup labor cost is $23 per hour.

1. What is the optimal size of the production run for bumpers?

2. Based on your answer to the previous question, and assuming the manufacturer holds no safety stock, what would be the average inventory for these bumpers?

3. Based on your answer two questions back, how many production runs will be required each year to satisfy demand? HINT: As a general rule, whenever calculating a value that is based on previous calculations in Excel, always be sure to use cell references rather than a rounded value as a calculation input.

4. Suppose the customer (an auto manufacturer) wants to purchase in lots of 640 and that Bob's Bumpers is able to reduce setup costs to the point where 640 is now the optimal production run quantity. How much will they save in annual holding costs with this new lower production quantity?

5. How much will they save in annual setup costs with this new lower production quantity?